The Studio Mega-Deal That Wasn’t

In Hot Tub Time Machine, a group of sad-sack pals are transported back to what ought to have been their heyday, with a chance to set things right and rewrite the future. It’s a goofy theme that must have had resonance with the folks trying to sell Metro-Goldwyn-Mayer, the once-storied movie studio behind Machine, which opens this weekend. A few years ago, the sale of MGM would have generated a lot of heat—indeed, that was exactly the case when the studio was sold to a group of private-equity firms and corporate bigs like Sony and Comcast in 2004. But if there was ever a sign of how times have changed in the movie business, the big story about MGM for weeks now is about who was dropping out of the bidding or how little those who remained are willing to pay for it.

Last Monday, final-final—we really mean final this time!—bids were submitted by Time Warner, a billionaire investor and Lionsgate. The top bid was expected to be around $1.5 billion, a far cry from the $5 billion MGM sold for several years ago, and not brilliant for a company carrying $3.7 billion in debt. MGM said it will stretch the process by reviewing the bids “for the next few weeks,” after which it’s quite possible they’ll be deemed too low and MGM’s management would work on a way to remain independent for the time being.

The story line here is that normally deal-crazy Hollywood has replaced its mojo with an uncomfortable new wariness. (Similarly, Disney’s sale of what remains of Miramax has proceeded at a glacial pace.) It doesn’t help that MGM has been a husk of its once mighty self for a long while, the consequence of being sold and resold (often to or by Kirk Kerkorian), and the fact that Ted Turner years ago hived off the best parts of its huge catalog of old movies (including Gone with the Wind and The Wizard of Oz). But these kinds of details didn’t used to matter so much when every triumphant new owner was bestowed a “Lion Will Roar Again” headline in the trades. And MGM still had a perfectly decent business peddling its library of 4,000-odd films, as well as a lucrative association with the James Bond franchise.

MGM struggled lately not just under its debts but under the differing agendas of its masters. The only clear financial beneficiary from MGM has been Sony, which co-released the last two Bond films and locked up MGM for its Blu-Ray DVD standard when it was still embroiled in its format war. But Sony also fell short in an early deal to distribute MGM’s films; Harry Sloan, who was brought in to run MGM, replaced Sony with Fox, which guaranteed better terms up front and promised better results. But that relationship has also been complicated. Mr. Sloan was replaced by a turnaround specialist last year.

Its internal issues aside, MGM is the embodiment of a bigger issue vexing Hollywood—that no one knows how much of what’s happening today is due to permanent tectonic changes wrought by the move away from physical to digital copies, and how much is just due to a really crappy recession. Thus, the idea of “once in a lifetime” assets coming on the market doesn’t hold the appeal it once did—unless those assets are demonstrably hot, like Marvel Entertainment. To its credit, MGM did attract Len Blavatnik, the Ukraine-born billionaire, as a potential bidder, which at least proves yet again that there is always a new swimmer willing to dip into the Hollywood shark pond. Lionsgate’s presence in the process is curious, given that the company has its own challenges and is actually smaller than MGM. Plus, Carl Icahn last week made a hostile offer for Lionsgate. Oh, and about that: No one is interpreting Mr. Icahn’s designs on the studio as a sign that investor excitement in Hollywood is about to come screaming back. Mr. Icahn is a singular force in business, but his best-known media investment was in Blockbuster, which last week warned it may file for bankruptcy protection. In a gigantic industry built on making stuff up, there’s just no faking it anymore.